Tag Archives: seeking-alpha

3 Merger Arbitrage Opportunities

Summary The arb universe with highlighted opportunities. An idea on how to best time setting them up. One plug and play way to get these at a discount. What are today’s best merger arb opportunities? What are the arbs saying? 1. The first opportunity is to put together a portfolio by hand. The bolded opportunities are the seven that I see as the best risk-adjusted opportunities. Click on comments for additional deals on the specific opportunities. 2. Wait for the next antitrust suit Last fall’s abandonment of the AbbVie (NYSE: ABBV ) acquisition of Shire (NASDAQ: SHPG ) was an exceedingly well disguised blessing for arbs. While the SHPG price cratered before subsequently recovering fully, the chaos led to the best arb spreads relative to risk in years. Today, it appears as if the US antitrust authorities are probably preparing at least one antitrust enforcement action. If/when they block at least one of the current deals (Rexam PLC ADR ( OTCQX:REXMD )? Office Depot Inc. (NASDAQ: ODP )?), the other spreads will widen price-insensitively, leaving better opportunities, perhaps ones that rival last autumn’s. 3. Leave it to the pros While I am an avowed skeptic of the whole concept of “smart money,” this is admittedly a highly research-intensive and fact-specific investment strategy. So, you may want to seek professional help. Hedge funds such as Rangeley Capital are limited to accredited investors. I try to communicate my most actionable items to Sifting the World members, but sometimes you just want someone else to pull the trigger. What should you do? One candidate is to invest in GDL Fund (NYSE: GDL ). According to the fund’s objective, The Fund is a diversified, closed-end management investment company whose investment objective is to achieve absolute returns in various market conditions without excessive risk of capital. Absolute returns are defined as positive total returns, regardless of the direction of securities markets. To achieve its investment objective, the Fund, under normal market conditions, will invest primarily in securities of companies (both domestic and foreign) involved in publicly announced mergers, takeovers, tender offers and leveraged buyouts and, to a lesser extent, in corporate reorganizations involving stubs, spin-offs, and liquidations. The manager is someone I respect. The expense ratio of over 3% is indefensibly obscene, but less so than any hedge fund. The distribution yield is over 6%. The discount to NAV is over 17%. That discount is greater than the 5-year average and the YTD average. It is diversified across sectors. Top Sectors Consumer Services 16.28% Healthcare 12.21% Technology 12.20% Consumer Goods 8.07% Utilities 7.96% Oil & Gas 5.18% Basic Materials 4.64% Financials 4.57% Industrials 3.69% Telecommunications 2.09% Would I quibble with the specific positions? Sure. But does GDL deserve this deep a discount? I don’t think so. Does Gabelli Equity Trust (NYSE: GAB ) need an activist to come in and demand that they cut executive compensation? No comment. But if Mario Gabelli is available, he might want to take a look at it. Conclusion Today, there are some great merger arbitrage opportunities. Tomorrow, they could get even richer if we see a big antitrust suit against one or more of the current deal crop. If you want to take a dip but don’t want the bother, consider GDL as one way to get exposure at a significant discount. Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks. Disclosure: I am/we are long PRGO, ALTR, ISSI, WMB, BHI, DEPO, PNK. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: Chris DeMuth Jr is a portfolio manager at Rangeley Capital. Rangeley invests with a margin of safety by buying securities at deep discounts to their intrinsic value and unlocking that value through corporate events. In order to maximize total returns for our investors, we reserve the right to make investment decisions regarding any security without further notification except where such notification is required by law.

The One Thing You Must Do When The Market Tanks

By Tim Maverick It’s a scenario that repeats itself during every stock market downturn: At the first sign of distress, mom and pop investors head for the hills. And the year 2015 is no exception. During July and August, investors withdrew money from both stock and bond mutual funds. According to Credit Suisse, this is the first time withdrawals have occurred in both categories in consecutive months since 2008. That was, of course, during the last financial crisis. I believe Yogi Berra said it best: “It’s like déjà vu all over again.” Here’s What You Need to Do I’ve been in the investment business since the 1980s and have been through every market selloff since 1987. Even though I’m no longer a professionally licensed advisor, I do have a few thoughts on investor behavior during selloffs. First of all, if you’re in your 20s, 30s, or 40s, don’t worry. The stock market’s long-term track record is undeniable. For those of you in your 50s or 60s, I would’ve, at one point in time, warned about bear markets possibly lasting as long as a decade. But with the Federal Reserve reacting to every market sniffle with lots of money, the dynamics have changed. Look at last week’s turbulence. Already, prominent voices like Bridgewater Associates Founder Ray Dalio have said that further turmoil would encourage more quantitative easing (QE). Thus, for regular investors, the only real danger point – as I’ve described in a previous article – is shortly before and shortly after your retirement . And if you’re in such a time frame, your stock allocation should’ve already been lowered. Thus, the one thing investors should do during this current downturn is take a serious look at their portfolios and make sure everything is allocated properly. Most likely, a rebalancing is in order. Rebalancing Really Works Rebalancing a portfolio between stocks, bonds, and cash is important – and it can actually improve your returns. In 2012, Columbia Business School professor Andrew Ang conducted a study. He looked at returns from January 1926 through December 1940, a period that includes the Great Depression. Here’s what he found: A portfolio of 100% stocks returned 81% with dividends reinvested. A portfolio of 100% government bonds returned 108%. But a portfolio of 60% stocks and 40% bonds, rebalanced quarterly, returned 146%! Now, I don’t think rebalancing quarterly is necessary. And you definitely shouldn’t rebalance in the midst of market volatility. Instead, get your game plan in order now, and put it in place after the dust has settled. That will likely be in a few months. After all, we’re in that nasty seven-year cycle period (1987, 1994, 2001, 2008, 2015) when bad things tend to happen to the stock market. One final point: If you do rebalance in a taxable account, there will be tax consequences. How to Reallocate What do I mean by reallocating or rebalancing your assets? Well, I use the words of legendary investor Sir John Templeton as a guide. He recommended “to buy when others are despondently selling and to sell when others are greedily buying.” This translates to a counter-intuitive action: Sell a portion of your winners and add those funds to lagging categories. But only do so if your percentages are seriously out of whack. Here’s a hypothetical, simplified example: A year ago, in the stock portion of your portfolio, you had 20% in technology and biotechnology stocks, and 20% in energy and emerging market stocks. But now, with tech and biotech red-hot, these stocks represent 30% of your portfolio. Meanwhile, ice-cold energy and emerging markets stocks are down to 10% of your holdings. You should sell where the greed is – where analysts are saying the “trees will grow to the sky” – and buy where investors are fleeing en masse. In other words, bring them back into balance at 20% each. This strategy will still keep you exposed to the current winning sectors while also boosting your exposure to tomorrow’s winners. Take a look at this data from Franklin Templeton on emerging markets. It shows that the bull phases are longer and stronger than the bear phases in these markets: Thus, you want to be positioned to take advantage of such situations. You also don’t want to be highly exposed to a hot sector if it crashes, a la tech stocks in 2000-01. John Wooden on Investing To summarize, I’d like to quote legendary basketball coach John Wooden: “If you’re too engrossed and involved and concerned in regard to things over which you have no control, it will adversely affect the things over which you have control.” That’s a great philosophy for life – and it applies to investing, as well. Don’t worry about the stock market. You can’t control it. On the other hand, you can control how you put your money to work for you. Original Post

4 (Or Is It 6?) Years In The Making

Volatility is back – there’s no getting around it, and we’ve got ourselves a nice little 10% correction from earlier this year. Last week, we saw big intra-day swings in the markets across the globe, and yesterday, we saw more of the same, with the S&P 500 (NYSEARCA: SPY ) off nearly 3% at the end of the day and the international markets off further. (Of course, the US market was actually up last week, but who’s counting?) The past few weeks have struck many as a bit of a shock, in large part because it has been some time since we’ve had really any volatility in the markets at all. The VIX (S&P 500 volatility) has spiked back to levels we haven’t seen since late 2011: (click to enlarge) But we still pale in comparison to the huge swings in 2008 and 2009: (click to enlarge) The primary issue is that we got comfortable. Really comfortable. I talked about this earlier – when we were fat and happy and too cozy in our calm markets to be bothered to remember what markets do on a regular basis. I see the irony in my post: “I don’t know what the catalyst will be. More aggressive Fed tapering? Global unrest? An unseen recession? Political turmoil? War? Most likely it will be something none of us saw coming – that is how these things usually work out.” Last year, not too many people said that we’d be getting a correction because of fears of a Chinese economic slowdown or because the anticipated-for-five-years-now Fed rate hike was finally (maybe) coming around the corner. I certainly didn’t. The only thing you should be thinking with these kind of short-term corrections is “This is what stocks do.” Put it on a post-it on the bathroom mirror or on the back of your phone or the side of your monitor or wherever you need the reminder. Stocks go down! Sometimes they do it quickly (see November 2008-March 2009), and sometimes it takes quite a while (see 2000-2002). Sometimes they go down a little (do you even remember the decline in 2011?), and sometimes they go down a lot. Sometimes it’s because of a recession, and sometimes it’s not. Every time someone you’ve never heard of will get credit for “predicting it,” and every time someone who has been bearish for the last 20 years will revel in their brief vindication. Each and every time, you will have an opportunity to decide how you will respond. Are you going to stare at the market every day? Are you going to anchor on what your account value was three months ago and bemoan your “losses?” Are you going to find some market commentator who told you he saw this coming and now know exactly what you should do next? Here’s what you should probably do when stocks go down: Nothing. Boring advice, I know. But usually, you should do nothing. Sometimes there’s an opportunity to take some tax losses. Sometimes it will warrant rebalancing (though rarely upon a 10% correction, depending on your rebalancing rules). Most of the time, you’re going to do nothing. We’re not good at doing nothing (more on that later), but give it a try. Go outside or read a good book and tell yourself “This is what stocks do,” and do nothing.